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China and Russia Sign Major Gas Deal

Michael Johnson

Russian state owned gas company, Gazprom, and China National Petroleum Corporation agreed to a landmark energy contract on Wednesday following a visit by President Vladimir Putin to Shanghai. Starting in 2018, Moscow has agreed to sell over $400 billion worth of natural gas to meet rising Chinese demand over a 30 year period. Although the exact terms of the deal remain unknown, the agreement helps Russia become less dependent on European energy demand.

After many years of negotiations, the finalized contract hands President Putin a much needed victory not only economically but politically as well. Recent trade sanctions and visa bans against Russian firms and officials in response to Moscow’s actions in Ukraine have spooked Western investors. While not incredibly strong, the sanctions’ symbolic significance probably helped put Russia into recession.

President Xi Jinping of China, left, and President Vladimir V. Putin of Russia met on Wednesday at a conference in Shanghai. (Photo: Mark Ralston)

Wednesday’s accord opens up major new markets to Gazprom. The company’s CEO, Alexei Miller, was all to happy to tell local reporters that the deal was larger than the GDP of South Africa. According to Reuters, Russia will invest about $55 billion in pipelines and infrastructure over the next few years to supply all the increased demand. Such projects, including a higher capacity liquefied natural gas (LNG) terminal planned in Vladivostok, will also make more energy available to other fast growing Asian countries.

Ultimately, greater gas demand in Asia will make Moscow less reliant on revenue provided by Europeans customers. Therefore, Russia should benefit from additional pricing flexibility and increase its political leverage over EU countries. But other strong regional trends, including fracking, in countries such as Poland, have limited Putin’s influence.